"Demand is there," but questions linger over pot tax money

By Colin A. Young, State House News Service

Thursday

Mar 7, 2019 at 4:52 PM

BOSTON — While the number of stores legally allowed to sell recreational marijuana in Massachusetts remains lower than anticipated, the Baker administration's budget chief said this week it's too early to say whether the state will meet its target for marijuana tax revenue this fiscal year.

Administration and Finance Secretary Michael Heffernan said that while the marijuana tax revenue "numbers are low," it is still too green of an industry to be able to say whether the state is on track to hit its target of $63 million in revenue in the fiscal year that ends in June.

"In modeling marijuana, it has a ramp as we go out. I believe that in December there were two facilities live and there were five facilities live in January ... so we're seeing a real increase," he told Ways and Means Committee Co-chair Sen. Michael Rodrigues during a budget hearing Tuesday. "So the numbers are low but it's too early in the birthing of this particular industry to be able to actually calculate if we're on or off track for our revenues."

Under questioning from Rodrigues, Heffernan did not offer an estimate as to how much of its projected $63 million the state has so far collected in cannabis taxes, but through late February consumers had not even purchased $63 million worth of marijuana in Massachusetts.

In data released last week, the Cannabis Control Commission said that through Feb. 24 retailers had sold $44.9 million worth of marijuana and marijuana products since the first retail stores opened in November.

Cannabis sales in Massachusetts are subject to a 10.75 percent excise tax and the state's 6.25 percent sales tax -- an effective 17 percent state tax rate -- as well as a local tax of up to 3 percent. Seventeen percent of $44.9 million is $7.63 million.

Rodrigues asked Heffernan if he and his team are still confident in their estimate of $63 million from marijuana taxes this fiscal year and the assumption baked into the governor's fiscal 2020 budget that the state will collect $133 million in pot tax revenue next fiscal year.

"You've seen the anecdotal stories that lines and traffic and it looks like demand is there and we're watching very closely how fast the facilities open to see if we're going to be on track for those numbers," the budget secretary said. "But because it was a little late getting started with the commission, it's just a little bit too early to tell how vertical that ramp in revenues is going to be."

Massachusetts voters legalized marijuana in November 2016, but the first non-medical stores did not open until November 2018. The CCC had said consumers could expect stores to open by July 2018, which would have coincided with the start of fiscal year 2019.

In 2017, when Revenue Commissioner Christopher Harding said the administration had estimated between $44 million and $82 million in marijuana revenue for fiscal year 2019 he said that estimate "assumes that effective July 1, 2018 there will be a reasonable number of retail establishments that will be operational during fiscal year 2019 and that the Massachusetts experience in terms of per capita consumption and the pace of sales ramping up is similar to that of other states where legalization has occurred, such as Colorado and Washington."

On Thursday, the Department of Revenue's Division of Local Services published a bulletin explaining that, in order to comply with DOR's policy that forecasts for local tax receipts be "conservatively based on historical trend analyses," the department will require cities and towns to submit written evidence with their marijuana revenue estimates. The same will go for revenue from short-term housing rentals.

"Since marijuana and short-term rental revenue are new and there is no historical information available to help with forecasting future revenue, we will be requiring written documentation for any estimated marijuana and short-term rental revenue," DLS wrote.

As of Thursday, the CCC has authorized 11 retailers to begin selling recreational marijuana though at least two are not currently open to non-medical customers -- one in Uxbridge received its formal green light from the CCC on Thursday but must wait until Monday to open and a store in Salem has stopped serving recreational customers as it deals with inventory issues.

Though the chairman of the CCC said in December he expected four to eight new retail stores coming online each month, the CCC recently went more than a month between authorizing new retail shops.

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